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JCPenney: Fire Ron Johnson

Monday’s 13% slide in JCPenney (NYSE:JCP) certainly made some headlines. But in case you haven’t been paying attention, this is hardly a new trend — JCP stock is down nearly 60% from its February peak and is down about 50% from its pre-recession peak.

For many stocks, the same-ol’ same-ol’ would be merely disappointing or frustrating. With JCP, it’s infuriating because investors were sold on a Hail Mary of a turnaround that never happened.

Those investors have an overpaid, overhyped CEO to blame.

JCP stock is off 40% since it announced Apple (NASDAQ:AAPL) retail wunderkind Ron Johnson would be taking the helm as CEO. His “innovative” vision has failed miserably, alienated core customers and left investors frustrated.

It’s time to fire Ron Johnson and give up on this failed JCPenney “turnaround.”

The Ron Johnson Hype Machine

It was a great shtick when JCP announced Johnson would take over in June 2011.

Bill Ackman of Pershing Square and Vornado Realty Trust (NYSE:VNO) heavyweight Steven Roth, who held a collective 28.8% stake in JCPenney, shook up the company and lobbied for Ron Johnson to take the helm. He was a savior, an Apple genius who could reinvent the company once and for all.

Ronnie made a big splash, making the unconventional move of investing $50 million in the company that hired him — 7.5-year warrants on 7.257 million shares of JCP stock with a strike price of $29.92.

Then in the months leading up to his formal takeover, everyone was falling over themselves with headlines like “5 Reasons J.C. Penney’s Ron Johnson will Reinvent Retail.” Ron Johnson planned to kill a promotion-driven, coupon-frenzied model and replace it with a new customer experience that would change the world. He set his sights on a Target (NYSE:TGT) model with quality brands on the cheap, married with the high-end customer service of chains like Macy’s (NYSE:M) and Nordstrom (NYSE:JWN) and wrapped up in a sexy, Apple-like package.

This guy was the real deal, ready to reinvent JCP and send it to new heights … right?

Wrong.

Another Tired Retail Flop

For starters, let’s get this up front — that “investment” was just funny money. Ron Johnson got $53.3 million just for showing up for his first few weeks of work — so let’s not act like he was putting any real skin in the game there.

But more important than any personal accounting tricks, Johnson came in with a grand vision of pulling the plug on coupons. That strategy blew up in his face, marked by three consecutive quarters of same-store sales drops 17% or more. The most recent was an apocalyptic 27% drop year-over-year — and the Wall Street Journal points out the headline tally of $2.7 billion in sales declines is equivalent to the entire annual revenue of Saks (NYSE:SKS).

Revenue and earnings per share have slumped for five consecutive quarters — spanning the entire tenure of Ron Johnson as CEO, and then some.

In May, Howard Davidowitz of Davidowitz & Associates said it best when he told Aaron Task of Yahoo! Finance that Ron Johnson has ” caused incalculable damage. The customers are everything. They don’t know what the hell he’s doing.” Davidowitz went on to say, “J.C. Penney didn’t need a revolution, it needed an evolution. You can’t take an old line company that’s been operating the same way a very long time and throw everything out the window and say ‘now we’ve reinvented the company.’”

And after all that? Coupons — or “gifts” or whatever you want to call them — are back.

So the much-anticipated retail turnaround has not happened. At all. Instead, investors have a costly mistake that has to be undone.

The biggest saving grace for JCPenney in the eyes of many is its $900 million cost-savings plan via job cuts and closures. But that’s hardly an inspiring sign, considering the considerable expense that Ron Johnson went through to overhaul the company.

It would have been cheaper to put an old-school cost-cutter in charge and let them gut the place.

Especially because lately, the cutting has been some of Ronnie’s cohorts — from the firing of president Michael Francis to nuking middle management and shaking things up.

Hardly a dream team there.  So it’s time to take things a step further and cut off the head of this ugly beast and hit reset on JCP without Ron Johnson.

Don’t Buy Under Any Circumstances

The ugliness has come home to roost. In its most recent quarterly report, JCP reported a net loss of $203 million, far worse than expectations, and same-store sales fell 26% while overall sales of $2.92 billion fell far short of the $3.23 billion forecast.

It’s the latest in a long line of ugly earnings, and shares continue to suffer as a result.

Wall Street is decidedly bearish on JCP. Credit Suisse (NYSE:CS) just cut JCPenney stock to “underperform” with a price target of $15. That’s another 17% down from here. BMO Capital Markets cut its price target to $18, almost exactly where shares landed after Monday’s flop. But Bank of America (NYSE:BAC), ever the optimist, slashed its outlook to $19. That’s at least north of current pricing, though not by much.

Considering the Street’s ridiculous number of buy and hold ratings and the rarity of a sell recommendation, you have to be pretty darn bad to win this kind of negative attention.

So investors should not buy, under any circumstances.

And if you own already? Well, maybe you can band together with other pissed-off JCP stockholders and try to kick Ron Johnson out of his corner office. Otherwise, your only hope is to wait for a dead-cat bounce and hit the eject button as soon as possible.

This stock isn’t turning around any time in 2013. And frankly, Ron Johnson should pay for that. His naïve notions of reinvention have cost an already troubled retail stock a full year of drama and big losses — and in this kind of environment for brick-and-mortar department stores, that’s inexcusable.

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Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he held a long position in Apple but none of the other stocks named here.

 

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Comments
  • http://www.facebook.com/beverly.angermeier Beverly Angermeier

    bye bye ronnie time to hit the bricks

  • futureisflux

    JC Penney used to be a nice place to shop until Moron Johnson took over. Fire Ron Johnson save Penney

  • moe

    Fire him immedealty i will be happy

  • moe

    Ron destroyed J C penny fire him imm

  • http://www.facebook.com/ella.bellasome Ella Bellasome

    I quit shopping there over a year ago. Most people I know hate the clothes. The clothes are garbage. RJ is clueless.

  • Laura

    I work at a California location, and I absolutely cannot believe how bad things have gotten! This man knows nothing about retail marketing! I have been saying since the beginning that Ron Johnson must have never been shopping or been to a mall. The insanity is making me crazy, as to why this man is still in charge.

  • Steven Levine NYC

    Investors in the Stock Need to Start Class Action Suit against Roth – Ackman and JC Penney allowing this creep to take over and destroy JCP without any knowledge of how to fix it and more over always has been a babysitter not a decision maker or for sure not a CEO just a worker that took orders and whether he execute them or not he got paid like he did. Now he got his first $50M before the Ship started to take on Water that is still there and sinking.

  • CJE

    Any moron knows that if you are heading for bankruptcy already, you don’t start spending more money right and left. People are depending on these jobs for their livelyhood. Why on earth can Penney’s not see he needs to be let go before they have to close for good.

  • maliboo barbie

    I dont know of anyone who has continued to shop at JC Penney after it was destroyed by Ronnie J. Starting with his FAIR AND SQUARE slogan (which is an old and antequated saying down to the basics of the merchandise. I now go to Kohls instead The merchandise at Penneys is cheap and un-appealing. Penneys used to be a great place to shop . I considered to be a step up from Kmart /Sears but but more affordable than Macy’s . Who are the idiots on the Board of Penneys that actually have faith in this moron .